    Fiscal Year 2006 Budget Request: U.S. Government Accountability
    Office (23-MAY-05, GAO-05-447T).

    We are grateful to the Congress for providing us with the support
    and resources that have helped us in our quest to be a
    world-class professional services organization. We are proud of
    the work we accomplish as we continue to provide our
    congressional clients with professional, objective, fact-based,
    non-partisan, non-ideological, fair, balanced, and reliable
    information in a timely manner regarding how well government
    programs and policies are working and, when needed,
    recommendations to make government work better. We believe that
    investing in GAO produces a sound return and results in
    substantial benefits to the Congress and the American people. In
    the years ahead, our support to the Congress will likely prove
    even more critical because of the pressures created by our
    nation's current and projected budget deficit and long-term
    fiscal imbalance. These fiscal pressures will require the
    Congress to make tough choices regarding what the government
    should do, how it will do its work, who will help carry out its
    work in the future, and how government will be financed in the
    future. We summarized the larger challenges facing the federal
    government in our recently issued 21st Century Challenges report.
    In this report, we emphasize the critical need to bring the
    federal government's programs and policies into line with 21st
    century realities. Continuing on our current unsustainable fiscal
    path will gradually erode, if not suddenly damage, our economy,
    our standard of living, and ultimately our national security. We,
    therefore, must fundamentally reexamine major spending and tax
    policies and priorities in an effort to recapture our fiscal
    flexibility and ensure that our programs and priorities respond
    to emerging security, social, economic, and environmental changes
    and challenges in the years ahead. We believe that GAO can be of
    invaluable assistance in helping the Congress address these
    challenges. This testimony focuses on our (1) performance and
    results with the funding you provided us in fiscal year 2004, (2)
    streamlining and management improvement efforts under way, and
    (3) budget request for fiscal year 2006 to support the Congress
    and serve the American people.
    -------------------------Indexing Terms-------------------------
    REPORTNUM:   GAO-05-447T
        ACCNO:   A24777
      TITLE:     Fiscal Year 2006 Budget Request: U.S. Government
    Accountability Office
         DATE:   05/23/2005
      SUBJECT:   Agency missions
    	     Budget activities
    	     Budget administration
    	     Budget authority
    	     Future budget projections
    	     Human capital
    	     Human capital planning
    	     Performance measures
    	     Personnel management
    	     Staff utilization
    	     Strategic planning
    	     Past fiscal year
    	     Budget requests

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    GAO-05-447T

    United States Government Accountability Office

    GAO Testimony

    Before the Committee on Appropriations,

                                House of Representatives

    For Release on Delivery Expected at 2:00 p.m. EDT Monday, May 23, 2005

    FISCAL YEAR 2006 BUDGET REQUEST

                         U.S. Government Accountability Office

    Statement of David M. Walker Comptroller General of the United States

    GAO-05-447T

    Mr. Chairman and Members of the Committee:

    I am pleased to appear before you today in support of the fiscal year 2006
    budget request for the U.S. Government Accountability Office (GAO). This
    request is necessary to help us continue to support the Congress in
    meeting its constitutional responsibilities and to help improve the
    performance and ensure the accountability of the federal government for
    the benefit of the American people.

    We are grateful to the Congress for providing us with the support and
    resources that have helped us in our quest to be a world-class
    professional services organization. I am proud of the work we accomplish
    as we continue to provide our congressional clients with professional,
    objective, fact-based, non-partisan, non-ideological, fair, balanced, and
    reliable information in a timely manner regarding how well government
    programs and policies are working and, when needed, recommendations to
    make government work better. We believe that investing in GAO produces a
    sound return and results in substantial benefits to the Congress and the
    American people. In the years ahead, our support to the Congress will
    likely prove even more critical because of the pressures created by our
    nation's current and projected budget deficit and long-term fiscal
    imbalance. These fiscal pressures will require the Congress to make tough
    choices regarding what the government should do, how it will do its work,
    who will help carry out its work in the future, and how government will be
    financed in the future.

    We summarized the larger challenges facing the federal government in our
    recently issued 21st Century Challenges report.1 In this report, we
    emphasize the critical need to bring the federal government's programs and
    policies into line with 21st century realities. Continuing on our current
    unsustainable fiscal path will gradually erode, if not suddenly damage,
    our economy, our standard of living, and ultimately our national security.
    We, therefore, must fundamentally reexamine major spending and tax
    policies and priorities in an effort to recapture our fiscal flexibility
    and ensure that our programs and priorities respond to emerging security,
    social, economic, and environmental changes and challenges in the years
    ahead. I believe that GAO can be of invaluable assistance in helping the
    Congress address these challenges.

    1GAO, 21st Century Challenges: Reexamining the Base of the Federal
    Government, GAO-05-325SP (Washington, D.C.: February 2005).

    My testimony today will focus on our (1) performance and results with the
    funding you provided us in fiscal year 2004, (2) streamlining and
    management improvement efforts under way, and (3) budget request for
    fiscal year 2006 to support the Congress and serve the American people.

                                        Summary

    In summary:

    o  	The funding we received in fiscal year 2004 allowed us to audit and
    evaluate a number of major topics of concern to the nation and, in some
    cases, the world. For example, we reported on the reconstruction efforts
    in Afghanistan and Iraq; important concerns about pay and other support
    for the National Guard and Reserve forces; numerous topics related to
    homeland and national security, including improving operations of the
    Departments of Homeland Security and Defense; curbing the use of
    counterfeit identity documents; and making the nation's transportation
    system safer from potential acts of terrorism. We also continued to raise
    concerns about the nation's long-term fiscal imbalance, summarized key
    health care statistics and published a proposed framework for related
    reforms, and provided staff support for the 9/11 Commission. In fiscal
    year 2004, we exceeded or equaled our all-time record for six of our seven
    key performance indicators while continuing to improve our client and
    employee feedback results. I am especially pleased to report that we
    documented $44 billion in financial benefits-a return of $95 for every
    dollar spent, or $13.7 million per employee. In fiscal year 2004, we also
    recorded 1,197 other benefits that could not be measured in dollar terms
    including benefits that helped to change laws, to improve services to the
    public and to promote sound agency and governmentwide management. Also,
    experts from our staff testified at 217 congressional hearings covering a
    wide range of important public policy issues during fiscal year 2004.

    o  	Shortly after I was appointed Comptroller General, I determined that
    our agency would undertake a transformation effort. This effort is
    consistent with the elements of House Report (H.Rpt.) 108-577 that focus
    on improving the efficiency and effectiveness of operations at legislative
    branch agencies. Our transformation effort has enabled us to eliminate a
    management layer, streamline our organization, reduce our overall
    footprint, and centralize many of our support functions. Currently, over
    50 percent of our support staff are contractors, allowing us to devote
    more of our staff resources to our mission work. We recently surveyed
    managers of agency support operations and identified additional activities
    that potentially could be filled through alternative sourcing strategies.
    In fiscal years 2005 and 2006, we will further assess the feasibility of
    using

    alternative sourcing for these activities. I would be pleased to brief you
    at a later date on our preliminary analyses.

    o  In developing our fiscal year 2006 budget, we have taken into

    consideration the overall federal budget constraints and the committee's
    desire to lead by example. Accordingly, we are requesting $493.5 million
    which represents a modest increase of 4 percent over fiscal year 2005.
    This increase is primarily for mandatory pay costs and price level
    changes. This budget request will allow us to continue to maximize
    productivity, operate more effectively and efficiently, and maintain the
    progress we have made in technology and other areas, but it does not allow
    us sufficient funding to support a staffing level of 3,269-the staffing
    level that we requested in previous years. Even as we are tempering our
    budget request, it needs to be acknowledged that there are increasing
    demands on GAO's resources. For example, the number of congressional
    mandates for GAO studies, such as GAO reviews of executive branch and
    legislative branch operations, has increased more than 15 percent since
    fiscal year 2000. While we have reduced our planned staffing level for
    fiscal years 2005 and 2006 in order to keep our request modest, we believe
    that the staffing level we requested in previous years is a more optimal
    staffing level for GAO and would allow us to better meet the needs of the
    Congress and provide the return on investment that both the Congress and
    the American people expect. We will be seeking your commitment and support
    to provide the funding needed to rebuild our staffing levels over the next
    few fiscal years, especially as we approach a point where we may be able
    to express an opinion on the federal government's consolidated financial
    statements.

    In fiscal year 2004, much of our work examined the effectiveness of the
    federal government's day-to-day operations, such as administering benefits
    to the elderly and other needy populations, providing grants and loans to
    college students, and collecting taxes from businesses and individuals.
    Yet, we remained alert to emerging problems that demanded the attention of
    lawmakers and the public. For example, we continued to closely monitor
    developments affecting the Iraq war, defense transformation, homeland
    security, social security, health care, the U.S. Postal Service, civil
    service reform, and the nation's private pension system. We also informed
    policymakers about long-term challenges facing the nation, such as the
    federal government's financial condition and fiscal outlook, new security
    threats in the post-cold war world, the aging of America and its impact on
    our health care and retirement systems, changing economic conditions, and
    the increasing demands on our infrastructure-from highways to water
    systems. We provided congressional committees, members, and

    Fiscal Year 2004 Performance and Results

    staff with up-to-date information in the form of reports, recommendations,
    testimonies, briefings, and expert comments on bills, laws, and other
    legal matters affecting the federal government. We performed this work in
    accordance with the GAO Strategic Plan for serving the Congress,
    consistent with our professional standards, and guided by our core values.
    See appendix I for our Strategic Plan Framework for serving the Congress
    and the nation.

                                  Outcomes of Our Work

    In fiscal year 2004, our work generated $44 billion in financial benefits,
    primarily from recommendations we made to agencies and the Congress (see
    fig. 1). Of this amount, about $27 billion resulted from changes to laws
    or regulations, $11 billion resulted from agency actions based on our
    recommendations to improve services to the public, and $6 billion resulted
    from improvements to core business processes, both governmentwide and at
    specific agencies, resulting from our work (see fig. 2). Our findings and
    recommendations produce measurable financial benefits for the federal
    government when the Congress or agencies act on them. The funds that are
    saved can then be made available to reduce government expenditures or be
    reallocated to other areas. The monetary effect realized can be the result
    of changes in

    o  business operations and activities;

    o  the structure of federal programs; or

    o  entitlements, taxes, or user fees.

    For example, financial benefits could result if the Congress were able to
    reduce its annual cost of operating a federal program or lessen the cost
    of a multiyear program or entitlement. Financial benefits could also
    result from increases in federal revenues-due to changes in laws, user
    fees, or sales-that our work helped to produce. Financial benefits
    included in our performance measures are net benefits-that is, estimates
    of financial benefits that have been reduced by the costs associated with
    taking the action that we recommended. Figure 3 lists several of our major
    financial benefits for fiscal year 2004 and briefly describes some of our
    work contributing to financial benefits.

    Figure 1: GAO's Financial Benefits

    Figure 2: Types of Financial Benefits Recorded in Fiscal Year 2004 from Our Work

     Figure 3: GAO's Selected Major Financial Benefits Reported in Fiscal Year 2004

    Description Amount

    Eliminated Medicaid's upper payment limit loophole. We identified a
    weakness in Medicaid's upper payment limit $10,073
    methodology that allowed states to make excessive payments to local,
    government-owned nursing facilities and then
    have the facilities return the payments to the states, creating the
    illusion that they had made large Medicaid payments
    in order to generate federal matching payments. Closing the loophole
    prevented the federal government from making
    significant federal matching payments to states above those intended by
    Medicaid. The amount shown represents the
    net present value of estimated financial benefits for fiscal years 2005
    and 2006-the final years for which benefits can
    be claimed.

    Updated the Consumer Price Index (CPI). We recommended that the Bureau of
    Labor Statistics periodically update $5,074
    the expenditure weights of its market basket of goods and services used to
    calculate the CPI to make it more timely
    and representative of consumer expenditures. The bureau agreed to do this
    every 2 years, and the CPI for January
    2002 reflected the new weights. For federal programs that use the CPI as
    an index for determining benefits, the
    adjustments have resulted in decreased federal expenditures (e.g., reduced
    Social Security cost-of-living adjustments)
    and increased federal revenues, such as reductions in the growth of
    personal exemptions for federal income taxes.
    The amount shown represents projected financial benefits for fiscal year
    2007, the fifth and final year for which we will
    allow benefits to be claimed for this action.

    Reduced costs associated with Medicare spending on home health care. We
    reported in 2002 that Medicare's $4,661
    payments for home health care episodes were, on average, about 35 percent
    higher than the estimated costs of home
    health care provided in the first 6 months of 2001. Our report helped to
    ensure that the Congress did not delay or
    eliminate a scheduled reduction in Medicare home health payments that had
    risen rapidly from the late 1980s through
    the mid-1990s.

    Reduced the cost of federal housing programs. We determined that the
    Department of Housing and Urban $3,638
    Development (HUD) did not have the information it needed to routinely
    calculate and track unexpended balances in its
    housing and community development programs. As a result of our work, the
    Congress required HUD to prepare
    quarterly reports on unexpended balances for each program, and HUD
    management committed to closely monitor
    these balances and identify amounts available for recapture.

    Improved the use of the Iraqi Freedom Fund. We reported that the military
    services may not obligate all of the funds $3,490
    appropriated for the global war on terrorism in fiscal year 2003 as
    required. Thus, the Congress rescinded $3.49 billion
    from the September 2003 balance remaining in the Iraqi Freedom Fund as
    part of the Fiscal Year 2004 Department of
    Defense Appropriations Act. These funds were made available for other
    purposes.

    Description Amount

    Reduced costs associated with preparing the Department of Defense's (DOD)
    financial statements. We $2,057
    determined that DOD's initial plans to obtain a favorable fiscal year 2004
    audit opinion were not feasible or cost
    effective. Therefore, instead of moving $2.2 billion to fund the DOD
    components' efforts focused on a fiscal year 2004
    audit opinion, the DOD Comptroller shifted $184 million to begin
    auditability assessments and audits, as applicable, as
    part of a long-term strategy to improve DOD's fiscal accountability. The
    Comptroller's decision not to reprogram the
    funds allowed DOD to use over $2 billion for other purposes during the
    fiscal year.

    Modified the focus of funding for DOD's V-22 Osprey aircraft program. We
    highlighted for DOD officials-before $1,618
    full production of the aircraft was scheduled to begin-numerous risks and
    unknowns that existed in the V-22 Osprey
    program because of inadequate testing and evaluation. We reported these
    concerns to a blue-ribbon investigative
    panel established after a second fatal crash of the V-22. As a result of
    our work, the blue-ribbon panel recommended
    that DOD temporarily reduce the production of the V-22 to a minimum level
    to free up funds to better address the
    research and development issues we raised. The Congress reduced the
    procurement funding for purchasing V-22
    aircraft from the planned 37 to 11 for each of fiscal years 2003 and 2004.
    This action allowed some funds to be used
    for development testing of the V-22 aircraft, but the remaining funds were
    made available for other purposes.

    Eliminated unnecessary military funding from the budget. We recommended
    that requested fiscal year 2004 funds $1,353
    be eliminated for three terminated military operations involving Iraq's
    compliance with various United Nations
    resolutions, Operations Northern and Southern Watch and Operation Desert
    Spring. These funds were made available
    for other purposes.

    Improved DOD's contracting and acquisition practices. We developed a
    strategic framework-based on the best $868
    practices of leading private-sector companies-to guide DOD's services
    contracting reforms and recommended
    changes in DOD's organizational structure and approach to acquiring goods
    and services, such as using cross
    functional teams and spend analyses to coordinate key purchases and
    leverage buying power for the agency. As a
    result of work done by us and others, the Congress cut DOD's budget in its
    fiscal year 2003 appropriation in
    anticipation of expected savings. This accomplishment amends a financial
    benefit we claimed in fiscal year 2002 and
    represents an additional benefit in fiscal year 2004-the final year for
    which a benefit can be claimed.

    Source: GAO.

    Many of the benefits that result from our work cannot be measured in
    dollar terms. During fiscal year 2004, we recorded a total of 1,197 other
    benefits (see fig. 4). We documented 74 instances where information we
    provided to the Congress resulted in statutory or regulatory changes, 570
    instances where federal agencies improved services to the public, and 553
    instances where agencies improved core business processes or
    governmentwide reforms were advanced (see fig. 5). These actions spanned
    the full spectrum of national issues, from ensuring the safety of
    commercial airline passengers to identifying abusive tax shelters. See
    figure 6 for examples of other benefits we claimed as accomplishments in
    fiscal year 2004.

    Figure 4: Other Benefits

    Figure 5: Types of Other Benefits Recorded in Fiscal Year 2004 from Our
    Work

    Figure 6: GAO's Selected Other (Nonfinancial) Benefits Reported in Fiscal
    Year 2004

    Vision 100-Century of Aviation Reauthorization Act, Pub. L. We worked
    closely with the Congress to draft language that was

    No. 108-176

    included in this law related to curriculum and certification requirements
    for aviation mechanics. The language, which was based on recommendations
    we had made, included a requirement that the Federal Aviation
    Administration update and revise curriculum standards for aviation
    mechanics.

                      Medicare Prescription Drug, Improvement, and

             Congress included six provisions in the law based on analyses

                     Modernization Act of 2003, Pub. L. No. 108-173

    and recommendations we made. For example, our work found that Medicare's
    method for establishing payment rates for drugs obtained under Medicare
    Part B-which covers doctors' services, outpatient hospital care, and some
    other nonhospital services- was flawed because it based payments on
    nonmarket-driven price estimates. The law addressed these issues by
    lowering payment rates in 2004 for drugs covered by Part B to more closely
    reflect acquisition costs and by changing the method for calculating these
    payment rates in 2005, basing these rates on a market-driven estimate.
    Also, partly on the basis of our work, the Congress modified the
    eligibility criteria for small rural hospitals to qualify as critical
    access hospitals under the Medicare program. This change provides
    flexibility for some additional hospitals to consider conversion. Because
    of Medicare's payment methodology, converting to a critical access
    hospital may help bolster a hospital's financial condition, allowing it to
    continue to provide services to patients.

               Consolidated Appropriations Act, 2004, Pub. L. No. 108-199

    We found that HUD could make more accurate eligibility decisions for
    individuals seeking housing assistance if it had access to more timely
    income information available from the Department of Health and Human
    Service's Office of Child Support Enforcement's National Directory of New
    Hires. We recommended that HUD match applicants and current recipients of
    its rental housing assistance programs with the new hires database. This
    law gives HUD access to information from the database that will better
    ensure that only eligible individuals receive housing assistance.

    National Defense Authorization Act for Fiscal Year 2004, Pub. L. No.
    108-136

    We testified that most existing federal performance appraisal systems,
    including a vast majority of DOD's systems, are not designed to support a
    meaningful performance-based personnel system, and agencies should have to
    demonstrate that these systems are modern, effective, and valid in order
    to receive any additional performance-based flexibilities. We suggested
    that the Congress establish a governmentwide fund whereby agencies could
    apply for funds to modernize their performance management systems and
    ensure that those systems have adequate safeguards to prevent abuse. This
    law established the Human Capital Performance Fund to support all
    executive agencies as they plan for and carry out performance-based
    rewards for their civilian employees.

    Helped to Ensure the Safety of Shellfish 	In July 2001, we reported that
    the Food and Drug Administration's (FDA) oversight of states' shellfish
    safety programs was not riskbased and thus FDA was not using its limited
    resources wisely. To better ensure shellfish safety, we recommended that
    FDA identify risk factors for each of its program elements (growing area
    classification, processing and shipping, and control of harvest). FDA
    developed a scoring system for these factors. FDA shellfish specialists
    compute a total risk score of high, medium, or low that determines the
    frequency of the evaluation of that program element. High-risk elements
    were to be evaluated every year beginning in fiscal year 2003, medium-risk
    elements every second year beginning in fiscal year 2004, and low-risk
    elements every third year beginning in fiscal year 2005.

    Identified the Need for Better Criteria to Determine Highly Our report
    found that states did not have the information needed to Qualified
    Teachers determine whether teachers had met criteria to be considered
    highly qualified, as required by the No Child Left Behind Act.
    Specifically, states did not have the information they needed to develop
    methods to evaluate the subject area knowledge of teachers. To help states
    determine the number of highly qualified teachers they have and the
    actions they need to take to meet the requirements for highly qualified
    teachers by the end of the 2005-2006 school year, we recommended that the
    Secretary of Education provide more information to states about methods to
    evaluate subject area knowledge of current teachers. In January 2004,
    Education issued a revised version of the guidance "Improving Teacher
    Quality," which contains more information on how to evaluate subject area
    knowledge to meet the federal definition of a highly qualified teacher.
    Specifically, the guidance includes a new section that, among other
    things, defines evaluation standards and factors to consider when
    developing them. Encouraged VA to Clarify the Array of Home Health Care We
    recommended that the Department of Veterans Affairs (VA)

    Services Available to Veterans 	specify in policy whether three home
    health services-home-based primary care, homemaker/home health aide, and
    skilled home health care-are to be available to all enrolled veterans. In
    response, VA published an information letter on October 1, 2003,
    clarifying that, according to VA policy, the three home health services
    are to be available for all enrolled, eligible veterans in need of such
    services. The information letter was distributed to all facilities through
    e-mail and is available on the VA Web site.

    Identified the Need for More Specific Criteria to Select for We found that
    the Internal Revenue Service (IRS) is investing more

    Audit Tax Returns from Large Corporations	in audits of large corporations
    and getting less in return. To improve the audits of tax returns filed by
    large corporations, we recommended that IRS provide more specific
    objective criteria and procedures to guide the selection of large
    corporate tax returns and classification of tax issues with high audit
    potential across the districts. In March 2002, IRS implemented a process
    for scoring returns in order to fully implement a plan to place these
    returns in the field for audit. IRS has begun to identify high-risk
    returns from corporate and partnership tax returns using the Discriminant
    Analysis System.

    Helped to Centralize the Oversight of Major DOD Contracts We examined
    various DOD initiatives under way that are intended

    to better manage acquisition of services, including drafting policy to
    provide better oversight on purchases of high-dollar value services. In
    response to our work, the Under Secretary of Defense for Acquisition,
    Technology, and Logistics and each of the military departments now have a
    management structure in place and a process for reviewing major (i.e.,
    large-dollar or program-critical) service acquisitions for adherence to
    performance and other contracting requirements. The new policy establishes
    a threshold of $500 million or more for selecting service purchases for
    review and approval by the military department and possibly DOD
    headquarters, allowing DOD to adequately plan major purchases before
    committing the government to major expenditures.

    Helped to Reduce Fraud, Waste, and Abuse of Agencies' Purchase Cards

    In a series of reports and testimonies beginning in 2001, we highlighted
    pervasive weaknesses in the government's $16 billion purchase card
    program. Our work identified numerous cases of fraud, waste, and abuse at
    DOD, HUD, and the Federal Aviation Administration. These agencies have
    taken significant steps to implement the hundreds of recommendations we
    made to upgrade their controls. Major improvement areas include enhanced
    controls over card issuance and cancellation, reduced span of control for
    approving officials, increased human capital resources and training, new
    performance measures and goals, required advance approval of purchases,
    and independent receiving and acceptance of goods and services. These
    efforts will substantially reduce the government's vulnerability to fraud,
    waste, and abuse in agencies' purchase card programs.

                                      Source: GAO.

                                     Recommendation
                                    Acceptance Rate

    At the end of fiscal year 2004, 83 percent of the recommendations we made
    in fiscal year 2000 had been implemented (see fig. 7), primarily by
    executive branch agencies. Putting these recommendations into practice is
    generating tangible benefits for the American people. As figure 8
    indicates, agencies need time to act on our recommendations. Therefore, we
    assess recommendations implemented after 4 years, the point at which
    experience has shown that, if a recommendation has not been implemented,
    it is not likely to be.

                       Figure 7: Past Recommendations Implemented

    Figure 8: Cumulative Implementation Rate for Recommendations Made in
    Fiscal Year 2000

    During fiscal year 2004, experts from our staff testified at 217
    congressional hearings (see fig. 9) covering a wide range of complex
    issues. For example, our senior executives testified on the financial
    condition of the Pension Benefit Guaranty Corporation's single-employer
    program, the effects of various proposals to reform Social Security's
    benefit distributions, and enhancing federal accountability through
    inspectors general. Nearly half of our testimonies were related to
    high-risk areas and programs. See figure 10 for a summary of issues we
    testified on, by strategic goal, in fiscal year 2004.

    Testimonies That Serve the Congress

                                 Figure 9: Testimonies

    GAO's High-Risk Program

    Issued to coincide with the start of each new Congress, our high-risk
    update lists government programs and functions in need of special
    attention or transformation to ensure that the federal government
    functions in the most economical, efficient, and effective manner
    possible. Our latest report, released in January 2005, presents the status
    of high-risk areas identified in 2003 and lists new high-risk areas
    warranting attention by the Congress and the administration.2

    In January 2003, we identified 25 high-risk areas; in July 2003, a
    twentysixth high-risk area was added to the list (see table 1). Since
    then, progress has been made in all areas, although the nature and
    significance of progress varies by area. Federal departments and agencies,
    as well as the Congress, have shown a continuing commitment to addressing
    these highrisk challenges and have taken various steps to help correct
    several of their root causes. GAO has determined that sufficient progress
    has been made to remove the high-risk designation from the following three
    areas:

    o  student financial aid programs,

    o  FAA financial management, and

    o  Forest Service financial management.

    Also, four areas related to IRS have been consolidated into two areas.

    This year, we designated four new high-risk areas. The first new area is
    establishing appropriate and effective information-sharing mechanisms to
    improve homeland security. Federal policy creates specific requirements
    for information-sharing efforts, including the development of processes
    and procedures for collaboration between federal, state, and local
    governments and the private sector. This area has received increased
    attention, but the federal government still faces formidable challenges
    sharing information among stakeholders in an appropriate and timely manner
    to minimize risk.

    The second and third new high-risk areas are, respectively, DOD's approach
    to business transformation and its personnel security clearance program.
    GAO has reported on inefficiencies and inadequate transparency and
    accountability across DOD's major business areas, resulting in billions

    2GAO, High-Risk Series: An Update, GAO-05-207 (Washington, D.C.: January 2005).

    of dollars of wasted resources. Senior leaders have shown commitment to
    business transformation through individual initiatives in acquisition
    reform, business modernization, and financial management, among others,
    but little tangible evidence of actual improvement has been seen to date
    in DOD's business operations. DOD needs to take stronger steps to achieve
    and sustain business reform on a departmentwide basis. Further, delays by
    DOD in completing background investigations and adjudications can affect
    the entire government because DOD performs this function for hundreds of
    thousands of industry personnel from 22 federal agencies, as well as its
    own service members, federal civilian employees, and industry personnel.
    The Office of Personnel Management (OPM) is to assume DOD's personnel
    security investigative function, but this change alone will not reduce the
    shortages of investigative personnel.

    The fourth high-risk area is management of interagency contracting.
    Interagency contracts can leverage the government's buying power and
    provide a simplified and expedited method of procurement. But several
    factors can pose risks, including the rapid growth of dollars involved
    combined with the limited expertise of some agencies in using these
    contracts as well as recent problems related to their management. Various
    improvement efforts have been initiated to address interagency
    contracting, but improved policies and processes, and their effective
    implementation, are needed to ensure that interagency contracting achieves
    its full potential in the most effective and efficient manner.

    Lasting solutions to high-risk problems offer the potential to save
    billions of dollars, dramatically improve service to the American public,
    strengthen public confidence and trust in the performance and
    accountability of our national government, and ensure the ability of
    government to deliver on its promises.

    Table 1: The Year that Areas on GAO's 2005 High-Risk List were Designated
    as High Risk

    Year designated Area high risk

    Medicare Program 1990

    DOD Supply Chain Management 1990a

    DOD Weapon Systems Acquisition 1990

    DOE Contract Management 1990

    NASA Contract Management 1990

    Enforcement of Tax Laws 1990b

    Year designated Area high risk

    DOD Contract Management 1992

    HUD Single-Family Mortgage Insurance and Rental Housing 1994 Assistance
    Programs

    DOD Financial Management 1995

    DOD Business Systems Modernization 1995

    IRS Business Systems Modernization 1995c

    FAA Air Traffic Control Modernization 1995

    Protecting the Federal Government's Information Systems and the 1997
    Nation's Critical Infrastructures

    DOD Support Infrastructure Management 1997

    Strategic Human Capital Management 2001

    U.S. Postal Service Transformation Efforts and Long-Term Outlook 2001

    Medicaid Program 2003

    Managing Federal Real Property 2003

    Modernizing Federal Disability Programs 2003

    Implementing and Transforming the Department of Homeland 2003 Security

    Pension Benefit Guaranty Corporation Single-Employer Insurance 2003
    Program

    Establishing Appropriate and Effective Information-Sharing 2005 Mechanisms
    to Improve Homeland Security

    DOD Approach to Business Transformation 2005

    DOD Personnel Security Clearance Program 2005

    Management of Interagency Contracting 2005

    Source: GAO.

    aThis area was formerly entitled DOD Inventory Management.

    bOne of the two high-risk areas that were consolidated to make this
    area-Collection of Unpaid Taxes-was designated high risk in 1990. The
    other area-Earned Income Credit Noncompliance- was designated high risk in
    1995.

    cIRS Financial Management has been incorporated into the IRS Business
    Systems Modernization high-risk area. Both areas were initially designated
    as high risk in 1995.

    In fiscal year 2004, we issued 218 reports and delivered 96 testimonies
    related to our high-risk areas and programs, and our work involving these
    areas resulted in financial benefits totaling over $20 billion. This work,
    for example, included 13 reports and 10 testimonies examining problems
    with DOD's financial management practices, such as weak internal controls
    over travel cards, inadequate management of payments to the Navy's
    telecommunications vendors, and abuses of the federal tax system by

    DOD contractors, resulting in $2.7 billion in financial benefits. In
    addition, we documented $700 million in financial benefits based on
    previous work and produced 7 reports and 4 testimonies focusing on, for
    example, improving Social Security Administration and Department of Energy
    processes that result in inconsistent disability decisions and
    inconsistent benefit outcomes.

    Shortly after I was appointed in November 1998, I determined that GAO
    should undertake a major transformation effort to better enable it to
    "lead by example" and better support the Congress in the 21st century.
    This effort is consistent with the House Report 108-577 on the fiscal year
    2005 legislative branch appropriation that focuses on improving the
    efficiency and effectiveness of operations at legislative branch agencies.

    Streamlining and Management Improvement Efforts

    The Mandate:

    H.Rpt. 108-577 directed GAO to work closely with the head of each
    legislative branch agency to identify opportunities for streamlining,
    crossservicing and outsourcing, leveraging existing technology, and
    applying management principles identified as "best practices" in
    comparable public and private sector enterprises. H.R. 108-577 also
    directed the legislative branch agencies to be prepared to discuss
    recommended changes during the fiscal year 2006 appropriations hearing
    cycle.

    Our agency transformation effort has enabled GAO to become more
    results-oriented, partnerial, client-focused, and externally aware, and
    less hierarchical, process-oriented, "siloed," and internally focused. The
    transformation resulted in reduced organizational layers, fewer field
    offices, the elimination of duplication in several areas, and improved our
    overall resource allocation. We began our transformation effort by using
    the GAO Strategic Plan as a framework to align our organization and its
    resources. On the basis of the strategic plan, we streamlined and
    realigned the agency to eliminate a management layer, consolidated 35
    issue areas into 13 teams, and reduced our field offices from 16 to 11. We
    also eliminated the position of Regional Manager-a Senior Executive
    Service level position-in the individual field offices and consolidated
    the remaining field offices into three regions-the eastern region, the
    central region, and the western region, each headed by a single senior
    executive. Following the realignment of our mission organization and field
    offices, GAO's support organizations were restructured and centralized to
    eliminate duplication and to provide human capital, report production and
    processing, information systems desk-side support, budget and financial
    management, and other services more efficiently to agency staff. This has
    resulted in a 14 percent reduction in our support staff since 1998. As

    shown in figure 11, these and subsequent measures improved the "shape" of
    the agency by decreasing the number of mid-level managers and by
    increasing the number of entry level and other staff with the skills and
    abilities to accomplish our work.

    Note: Profiles represent staffing at the end of each fiscal year. Fiscal
    years 2005 and 2006 are projected.

    During my tenure, GAO has outsourced and cross-serviced many
    administrative support activities, which has allowed GAO to devote more of
    its resources to mission work. In fiscal year 2004, about two-thirds of
    our nonhuman capital costs were spent to obtain critical mission support
    services for about 165 activities from the private and public sectors
    through outsourcing. Outsourcing contracts include a wide range of mission
    support activities, including information technology systems development,
    maintenance, and support; printing and dissemination of GAO products;
    operation and maintenance of the GAO Headquarters building; information,
    personnel, and industrial security activities; records management;
    operational support; and audit service support. GAO also meets many of its
    requirements through cross-servicing arrangements with other federal
    agencies. For example, GAO uses the Department of Agriculture's National
    Finance Center to process its personnel/payroll transactions. Also, GAO
    uses the legislative branch's long-distance telephone contract, which has
    resulted in continual reductions in longdistance rates. GAO also uses a
    wide range of contracting arrangements available in the executive branch
    for procuring major information technology (IT) services. GAO also uses
    the Library of Congress' Federal Library and Information Network to
    procure all of its commercial online databases.

    Currently, as shown in figure 12, over 50 percent of our staff resources
    in the support area are contractors, allowing us to devote more of our
    staff

    resources to our mission work. We recently surveyed managers of agency
    mission support operations and identified additional activities that
    potentially could be filled through alternative sourcing strategies. In
    fiscal years 2005 and 2006, we will assess the feasibility of alternative
    sourcing for these activities using an acquisition sourcing maturity model
    and costbenefit analyses.

    Utilizing IT effectively is critical to our productivity, success, and
    viability. We have applied IT best management practices to take advantage
    of a wide range of available technologies such as Web-based applications
    and Web-enabled information access, as well as modern, mobile computing
    devices such as notebook computers to facilitate our ability to carry out
    our work for the Congress more effectively. We make wide use of thirdparty
    reviews of our practices and have scored well in measurement efforts such
    as total cost of ownership, customer service, and application development.
    In fiscal year 2002, an independent study of GAO's IT processes and
    related costs revealed that, "GAO is delivering superb IT application
    support and development services to the business units at 29 percent less
    than the cost it would take the Government peer group to deliver." In
    confirmation of these findings, in fiscal year 2003, GAO was one of only
    three federal agencies to receive the CIO Magazine 100 Award for
    excellence in effectively managing IT resources to obtain the most value
    for every IT dollar. We were named to the CIO Magazine's "CIO 100" for our
    excellence in managing IT resources in both 2003 and 2004.

    Because one of our strategic goals is to maximize our value by serving as
    a model agency for the federal government, we adopt best practices that we

    have suggested for other agencies, and we hold ourselves to the spirit of
    many laws that are applicable only to the executive branch. For example,
    we adhere to the best practices for results-oriented management outlined
    in the Government Performance and Results Act (GPRA). We have strengthened
    our financial management by centralizing authority in a Chief Financial
    Officer with functional responsibilities for financial management,
    long-range planning, accountability reporting, and the preparation of
    audited financial statements, as directed in the Chief Financial Officers
    Act (CFO Act). Also, for the eighteenth consecutive year, independent
    auditors gave GAO's financial statements an unqualified opinion with no
    material weaknesses and no major compliance problems.

    In the human capital area, we are clearly leading by example in
    modernizing our policies and procedures. For example, we have adopted a
    range of strategic workforce policies and practices as a result of a
    comprehensive workforce planning effort. Among other things, this effort
    has resulted in greatly upgrading our workforce capacity in both IT and
    health care policy. We also have updated our performance management and
    compensation systems and our training to maximize staff effectiveness and
    to fully develop the potential of our staff within both current and
    expected resource levels.

    We are requesting budget authority of $493.5 million for fiscal year 2006.
    This budget request will allow us to continue to maximize productivity,
    operate more effectively and efficiently, and maintain the progress we
    have made in technology and other areas. However, it does not allow us
    sufficient funding to support a staffing level of 3,269-the staffing level
    that we requested in previous years. In preparing this request, we
    conducted a baseline review of our operating requirements and reduced them
    as much as we felt would be prudent. However, with about 80 percent of our
    budget composed of human capital costs, we needed to constrain hiring to
    keep our fiscal year 2006 budget request modest. We plan to use recently
    enacted human capital flexibility from the GAO Human Capital Reform Act of
    2004 as a framework to consider such cost savings options as conducting
    one or more voluntary early retirement programs and we also plan to review
    our total compensation policies and approaches.

    There are increasingly greater demands on GAO's resources. Since fiscal
    year 2000, we have experienced a 30 percent increase in the number of bid
    protest filings. We expect this workload to increase over the coming
    months because of a recent change in the law that expands the number of

    GAO's Fiscal Year 2006 Request to Support the Congress

    parties who are eligible to file protests. In addition, the number of
    congressional mandates for GAO studies, such as our reviews of executive
    branch and legislative branch operations, has increased more than 15
    percent since fiscal year 2000. While we have reduced our planned staffing
    level for fiscal years 2005 and 2006, we believe that the staffing level
    we requested in previous years is a more optimal staffing level for GAO
    and would allow us to successfully meet the future needs of the Congress
    and provide the return on investment that the Congress and the American
    people expect. We will be seeking your commitment and support to provide
    the funding needed to rebuild our staffing levels over the next few fiscal
    years, especially as we approach a point where we may be able to express
    an opinion on the federal government's consolidated financial statements.
    Given current and projected deficits and the demands associated with
    managing a growing national debt, as well as challenges facing the
    Congress to restructure federal programs, reevaluate the role of
    government, and ensure accountability of federal agencies, a strong GAO
    will result in substantially greater benefits to the Congress and the
    American people.

    Table 2 summarizes the changes we are requesting in our fiscal year 2006
    budget.

    Table 2: Fiscal Year 2006 Budget Request, Summary of Requested Changes

                     Dollars in thousands FY 2006 requested changes

                                                                       Cumulative
                                                                       percentage
                                        Budget category     FTEs    Amount change
                FY 2005 budget authority to support GAO
                                             operations    3,215         $474,565

                      Nonrecurring fiscal year 2005 costs         (4,122)   (0.9)
                                      Mandatory pay costs         20,778
                                      Price level changes          1,428      3.8
                            Relatively controllable costs              899
                             Subtotal - requested changes        $ 18,983     4.0
               Total FY 2006 budget authority required to
                                   support GAO operations 3,215  $493,548     4.0

    Source: GAO.

    Our budget request supports three broad program areas: Human Capital,
    Mission Operations, and Mission Support.

    In our Human Capital program, to ensure our ability to attract, retain,
    and reward high-quality staff and compete with other employers, we provide
    competitive salaries and benefits, student loan repayments, and transit
    subsidy benefits. We have undertaken reviews of our classification and
    compensation systems to consider ways to make them more market-based and
    performance-oriented and to take into consideration market data for
    comparable positions in organizations with which we compete for talent.
    Our rewards and recognition program recognizes significant contributions
    by GAO staff to the agency's accomplishments. As a knowledge-based,
    world-class, professional services organization in an environment of
    increasingly complex work and accelerating change, we maintain a strong
    commitment to staff training and development. We promote a workforce that
    continually improves its skills and knowledge.

    We plan to allocate funds to our Mission Operations program to conduct
    travel and contract for expert advice and assistance.

    Travel is critical to accomplishing our mission. Our work covers a wide
    range of subjects of congressional interest, plays a key role in
    congressional decision making, and can have profound implications and
    ramifications for national policy decisions. Our analyses and
    recommendations are based on original research, rather than reliance on
    third-party source materials. In addition, GAO is subject to professional
    standards and core values that uniquely position the agency to support the
    Congress in discharging its oversight and other responsibilities under the
    Constitution.

    We use contracts to obtain expert advice and or assistance not readily
    available within GAO, or when expertise is needed within compressed time
    frames for a particular project, audit, or engagement. Examples of
    contract services include obtaining consultant services, conducting
    broadbased studies in support of audit efforts, gathering key data on
    specific areas of audit interest, and obtaining technical assistance and
    expertise in highly specialized areas.

    Mission Support programs provide the critical infrastructure we need to
    conduct our work. Mission support activities include the following
    programs:

    o  	Information Technology: Our IT plan provides a road map for ensuring
    that IT activities are fully aligned with and enable achievement of our
    strategic and business goals. The plan focuses on improved client service,
    IT reliability, and security; it promotes effectiveness, efficiency and
    cost

    benefit concepts. In fiscal years 2005 and 2006, we plan to continue to
    modernize outdated management information systems to eliminate redundant
    tasks, automate repetitive tasks, and increase staff productivity. We also
    will continue to modernize or develop systems focusing on how analysts do
    their work. For example, we enhanced the Weapons Systems Database that we
    created to provide the Congress information to support budget
    deliberations.

    o  	Building Management: The Building Management program provides
    operating funds for the GAO Headquarters building and field office
    locations, safety and security programs, and asset management. We
    periodically assess building management components to ensure program
    economy, efficiency and effectiveness. We are currently 8 percent below
    the General Services Administration's (GSA) median costs for facilities
    management. We continue to look for cost-reducing efficiencies in our
    utility usage. Our electrical costs are currently 25 percent below GSA's
    median cost. With the pending completion of our perimeter security
    enhancements and an automated agency wide access control system, all major
    security enhancements will have been completed.

    o  	Knowledge Services: As a knowledge-based organization, it is essential
    for GAO to gather, analyze, disseminate, and archive information. Our
    Knowledge Services program provides the information assets and services
    needed to support these efforts. In recent years, we have expanded our use
    of electronic media for publications and dissemination; enhanced our
    external Web site, resulting in increased public access to GAO products;
    and closed our internal print plant and increased the use of external
    contractors to print GAO products, increasing the efficiency and
    costeffectiveness of our printing operation. Due to recent budget
    constraints, we have curtailed some efforts related to archiving paper
    records. We currently are implementing an electronic records management
    system that will facilitate knowledge transfer, as well as document
    retrieval and archival requirements.

    o  	Human Capital Operations: In addition, funds will be allocated to
    Human Capital Operations and support services to cover outplacement
    assistance, employee health and counseling, position management and
    classification, administrative support, and transcription and translation
    services.

    Concluding Remarks 	We appreciate your consideration of our budget request
    for fiscal year 2006 to support the Congress. GAO is uniquely positioned
    to help provide

    the Congress the timely, objective information it needs to discharge its
    constitutional responsibilities, especially in connection with oversight

    matters. GAO's work covers virtually every area in which the federal
    government is or may become involved anywhere in the world. In the years
    ahead, GAO's support will prove even more critical because of the
    pressures created by our nation's large and growing long-term fiscal
    imbalance.

    This concludes my statement. I would be pleased to answer any questions
    the Members of the Committee may have.

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